Knowledge gaps regarding power of attorney, the role of a will, impact of taxes

While just under half (46%) of Canadians report some awareness regarding estate planning, the IG Wealth Management report found that:

  • Just 50% are aware of how a power of attorney works
  • Only 47% understand the role a will plays
  • Just over a third (37%) of Canadians understand how taxes impact assets after death
  • Less than half (45%) understand the role of life insurance in protecting the value of an estate

Role of a financial advisor

For quite some time, working with a financial advisor has become the status quo, when it comes to advising Canadians on how to prepare for big life events. However, this new report highlights that only about half of those who work with a financial advisor (52%) had conversations with their advisor about the need for an estate plan.

"You should expect more from your advisor," explained Van Cauwenberghe, in a press release. "Only work with [an advisor] who [sic] understands how a comprehensive estate plan can safeguard your assets for the long-term, [and] has the experience and foresight to build one out."

Empower Your Investments with Q Trade

Discover Q Trade's award-winning platform and take control of your financial future. With user-friendly tools, expert insights, and low fees, investing has never been easier.

Start Trading Today

Estate planning gaps highlight potential danger

Van Cauwenberghe noted how a properly constructed estate plan allows for the distribution of assets, in a tax-efficient manner, in accordance to an individual's wishes. This lack of knowledge will only become more important as Canada deals with its aging population.

"Take, for example, life insurance. Not only does it play an important role in helping provide financial security for one's family in the event of death, it can also help offset the associated costs of a wealth transfer, including probate fees and taxation, to ensure the next generation receives an inheritance amount from the estate as intended,” she said.

How life insurance works

Life insurance is essentially a contract between you and an insurance company. The contract ensures that anyone who relies on your income for their financial prosperity (usually your partner and/or children) will receive money when you die. The money is meant to meet their basic needs, including housing, food, transportation, funeral costs, debt payments and sometimes includes funding for post-secondary education or your partner’s retirement.

There are two main types of life insurance available in Canada: term insurance and permanent insurance. Term life insurance expires after a specific period of time (the term), while permanent insurance policy never expires, covers you for life and is often more expensive as it includes an investment component.

It’s important to compare multiple providers to ensure you are getting the best price for your coverage since you are committing to paying your monthly premiums for multiple decades.

PolicyAdvisor Life Insurance is a digital life insurance brokerage that makes finding the best rates for life insurance a cinch. Using innovative technology and advice from in-house, licensed insurance experts, it’s your one-stop-shop for accessing insurance products offered through more than 25 of Canada’s best life insurance companies. Whether using your computer, tablet or mobile phone, you can compare insurance plans, get quotes and apply for life insurance from the comfort of your couch. Currently, Ontario, Alberta and Manitoba residents can start an insurance application with PolicyAdvisor; residents in other provinces can expect the company's expansion in the near future.

Another option is PolicyMe, an online insurance company that allows Canadians to buy term life insurance online in minutes at the most affordable price. On average, the rates are approximately 10% – 20% lower than other insurers in Canada, thanks to a simplified process that translates into savings for customers. Even better, PolicyMe stands behind its service. If you’re not happy with your policy in the first 30 days for any reason, PolicyMe will refund your payment in full. After that, you can cancel your policy at any time with no penalty. Start an insurance application with PolicyMe, which is licensed in almost all of Canada, with the exception of Quebec, New Brunswick and Newfoundland (but they’ve got plans to expand to these provinces in the future, so stay tuned).

Bottom line

“The reality is that passing down assets, like a family cottage, can often result in a significant tax burden," explains Van Cauwenberghe. "Life insurance payouts, which are tax-exempt, can help offset these costs and allow the property to remain in the family."

Even without the use of life insurance, Canadians need to consider how to protect their estate and their loved ones. One cost-effective and easy option is to create an online will. For instance, you can complete the entire process in just 20 minutes using Epilogue Wills. Or use promo code MONEYWISE and get 15% off any Willful plan.

Survey methodology

This study was conducted with an online sample of 1,000 adult Canadians aged 18 years and above. The research was conducted between April 30 to May 3, 2024. Results from a random sample of this size can be considered accurate to within ±3.1%. 19 times out of 20.

Sources

1. IG Wealth Management: Annual estate planning study (May 29, 2024)

Sponsored

Trade Smarter, Today

With CIBC Investor's Edge, kick-start your portfolio with 100 free trades and up to $4,500 cash back.

Nicholas completed his master's in journalism and communications at Western University. Since then, he's worked as a reporter at the Financial Post, Healthing.ca, Sustainable Biz Canada and more. Aside from reporting, he also has experience in web production, social media management, photography and video production. His work can also be found in the Toronto Star, Yahoo Finance Canada, Electric Autonomy Canada and Exclaim among others.

Explore the latest articles

Credit card hacks for international travel

Many credit cards offer amazing travel benefits, but it's important to be mindful of fees, safety and hidden charges that can quickly add up

Winston Sih Journalism lecturer | Contributor

Disclaimer

The content provided on Money.ca is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.